Review of Xcel Energy's Metropolitan Emission Reduction Alternative Project

Transcription

1 Review of Xcel Energy's Metropolitan Emission Reduction Alternative Project April 28, 2003

2 1.0 Introduction The Minnesota Public Utilities Commission (PUC) has begun its consideration of Xcel Energy s Metropolitan Emissions Reduction Project (MERP). During its March 27, 2003 meeting, the PUC asked for additional information about the Alternative project included in Xcel s July 2002 filing. In this report, the Minnesota Pollution Control Agency (MPCA) provides its analysis of Xcel s Alternative project. The Alternative project described by Xcel includes: Allen S. King, Bayport: Installation of new pollution control equipment to control sulfur dioxide, nitrogen oxides and particulate matter, boiler rehabilitation and life extension of generating equipment, with a modest increase in generation capacity of 12 percent. This project is identical in both Xcel s Proposal and in the Alternative. High Bridge, St. Paul: Installation of new pollution control equipment to control sulfur dioxide and particulate matter, and boiler modifications to lower nitrogen oxide emissions on Units 5 and 6, leaving Units 3 and 4 untouched. There is no increase in generating capacity. Riverside, Minneapolis: Installation of new pollution control equipment to control sulfur dioxide and particulate matter from Unit 8, along with a modification of the boiler to lower nitrogen oxide emissions. Rehabilitate the existing scrubber and fabric filter on Units 6 and 7 to reinstate sulfur dioxide and particulate control capabilities, and conduct boiler modifications to lower nitrogen oxide emissions. There is no increase in generating capacity. Minn. Stat. 216B.1692, Subd. 4. asks the MPCA to: Verify that the emission reductions project qualifies under Minn. Stat. 216B.1692, Subd. 1; Describe the projected environmental benefits of the proposed project; and Assess the appropriateness of the project. In addition to answering the above questions in this report, the MPCA is also to provide the PUC with answers to two questions posed under Minn. Stat. 216B.1692 Subd.5(c): Whether the project is needed to comply with new state or federal air quality standards; and Whether the emission reduction project is required as a corrective action as part of any state or federal enforcement action. In this assessment, Alternative refers to the set of alternative projects Xcel included in its filing. Proposal refers to Xcel s preferred project, the subject of the MPCA s December 2002 report. Analyses, definition of terms and concepts remains the same as previously described in the MPCA s December 2002 report. 1

3 2.0 Summary 2.1 Qualifying Projects The MPCA is unable to conclude whether the Alternative project, as presented in the July 2002 filing, qualifies under Minn. Stat. 216B The Alternative meets neither applicable new source review standards (best available control technology (BACT)), nor does the project result in emissions substantially lower than allowed by the new source performance standards for new coal-fired generating units, the first two conditions of Minn. Stat. 216B.1692, subd. (1)(3). Further, the MPCA is unable to conclude whether the Alternative meets the third condition of Minn. Stat. 216B.1692, subd. (1)(3) to qualify a project: that the project reduces emissions from current levels at a unit to the lowest cost-effective level when, due to the age or condition of generating unit, it would not be cost-effective to reduce the emissions to the levels required by new source review or new source performance standards. The MPCA is unable to make this conclusion because Xcel has not demonstrated that the Alternative reduces emissions to the lowest cost-effective level and has not provided any discussion or consideration of the age or condition of the plants. The MPCA has reviewed the Alternative project, and concludes that it is not needed to comply with new state or federal air quality standards, nor is the project required as a corrective action as part of a state or federal enforcement action. 2.2 Project Costs Because project costs are compared to the benefits of the Alternative project, project costs were reviewed to determine if they were in a reasonable range. The MPCA previously determined that the construction costs for the A.S. King rehabilitation project fall within a reasonable range as defined by similar projects conducted nationally. Additionally, the MPCA believes that the estimated cost for installing air pollution control equipment at High Bridge and Riverside are reasonable estimates for installing acid gas/fabric filters and making boiler modifications to reduce NOx emissions. However, the MPCA is concerned that the project costs of the Alternative may actually underestimate the total cost of retrofitting High Bridge and Riverside with air pollution control equipment. The cost estimates do not include plant rehabilitation, an activity the MPCA expects to be necessary to ensure the entire return on investment in air pollution control equipment is realized. In addition, the Alternative, if implemented, should also remedy the current coal management systems in place at the plants to minimize fugitive dust releases and improve the aesthetics. Project costs at these two plants do not include this activity. 2

4 2.3 Projected Environmental Benefits. The MPCA must describe the environmental benefits that result from the implementation of this project [Minn. Stat. 216B.1692, Subd 4 (2)]. These three plants emit significant amounts of pollution in the Twin Cities and Minnesota. The Alternative would reduce sulfur dioxide (SO 2 ) nearly as much as the Proposal. While the Alternative would substantially reduce nitrogen oxides (NOx) and particulate matter (PM10) emissions, the reductions are not nearly as large as the reductions of these pollutants in the Proposal. Instead of reducing carbon dioxide, carbon monoxide and lead as the Proposal does, the Alternative increases emissions of these pollutants. Finally, the Alternative makes no reductions in mercury emissions, unlike the significant reductions that would be achieved by the Proposal. The MPCA has examined the potential economic value of these emission changes by using the PUC s environmental externality values with adjustments for the likely length of time these plants are expected to be in service after the proposed upgrades and using a more appropriate discount rate. The resulting benefits are between $95 and $182 million net present value over a 30 year time period. This benefit estimate does not fully address health issues associated with power plant emissions, namely fine particles. It also does not consider the reduction in regional haze, acid rain, or ground level ozone. Xcel has not provided an estimate of the avoided costs related to the additional generating capacity and rehabilitation at the King plant in the Alternative. Using data presented relative to avoided costs of the Proposal, the MPCA estimates that the avoided cost of the Alternative project are approximately $110 million for the new capacity and $183 million for the refurbishment of King. 2.4 Appropriateness of the Project It is difficult to address the question of the appropriateness of the project since it is not possible at this time to determine whether the Alternative qualifies under Minn. Stat. 216B The MPCA has addressed its concern about the impact of emissions from old pwer plants extensively in its December 2002 submittal. It is a good and appropriate thing that the Alternative would apply emission controls at three old power plants. There will be significant health and environmental benefits. However, the MPCA has some concerns about the Alternative. First, the control technology proposed at High Bridge and Riverside does not represent state-of-the-art controls. It would seem appropriate, if new controls are to be applied, to use the best technology available. Second, the Alternative does not include plant rehabilitation at High Bridge and Riverside. 3

5 When comparing the Alternative to the Proposal, the MPCA concludes that the Proposal is the superior project. The Proposal has greater reductions of more pollutants, provides more local benefits, more new generating capacity, and more refurbished existing generating capacity. In addition, the Proposal appears to be more cost-effective than the Alternative. Another way to assess the costs and benefits of the Proposal and Alternative is to look at the costs per ton of pollutant reduced. This is an approach that is often used by EPA and states to analyze various control technology options for cost-effectiveness. The MPCA has conducted a preliminary assessment of the Proposal and Alternative to determine the cost per ton of pollutant removed for each option, included in Attachment 1. When comparing these two proposals in this manner, taking avoided costs into account, the Proposal shows a lower cost per ton of pollutant reduced than the Alternative proposal. This suggests the Proposal is more cost-effective than the Alternative. 4

6 3.0 Qualifying Projects Xcel has described an alternative project to its Proposal in Attachments 5, 6 and 7 of its July 26, 2002 filing. The project is described as follows: A. S. King The Alternative includes the identical work to A.S. King as the Proposal. A rehabilitation of the A.S. King plant in Bayport would add controls to significantly reduce emissions of SO 2, NO X and PM 10 while increasing the plant s capacity from 504 MW to 564 MW (a 60 MW increase in capacity). The King plant would continue to burn coal. The repowered plant would be functional in High Bridge At the High Bridge plant in St. Paul, located near the Mississippi River in downtown, Xcel s alternative is to continue operating all four existing coal-fired units, adding new air pollution control equipment to the electricity power generating units (Units 5 and 6) and leaving units 3 and 4 untouched. The new air pollution control equipment includes modifications to the combustion chamber to install low NOx burners, and the additional of spray drying to control acid gas emissions, followed by fabric filters to control particulate matter. Riverside In northeast Minneapolis, Xcel proposes to install air pollution control equipment on the existing boilers. The control equipment consists of rehabilitating the existing spray dryer absorber common to Units 6 and 7 (currently not used) to control SO2 emissions, as well as refurbishing the existing fabric filter to better control particulate matter. Boilers on Units 6 and 7 would have low-nox burners and/or over-fire air and boiler optimization software installed to control NOx emissions. Retrofitting Unit 8 at Riverside consists of installing a new spray dryer and fabric filter to control SO2 and particulate matter, keeping existing electrostatic precipitators (ESPs) inplace. NOx control consists of modifying the combustion air system to include over-fire air ports in this cyclone boiler. The MPCA is charged with determining whether proposals qualify for the cost recovery that is allowed under Minn. Stat. 216B This section evaluates each plant proposal to determine if it is a qualifying project. 3.1 Minn. Stat. 216B.1692 Subd. 1. Qualifying Projects. As discussed previously, projects that may be approved for the emissions reduction rate rider under this section must: 1) be installed on existing large electric generating power plants as defined under Minn. Stat. 216B.2421 subd. 2(1), that are located in the state and not subject to emission limitations for new power plants under the federal Clean Air Act; 5

7 The definition of a large power plant under Minn. Stat. 216B includes the following: Large energy facility means any electric power generating plant or combination of plants at a single site with a combined capacity of 50,000 kilowatts (50 MW) or more and transmission lines directly associated with the plant that are necessary to interconnect the plant to the transmission system; 2) not increase capacity by more than 10 percent or 100 megawatts, whichever is greater; This is a straightforward calculation of increased generating capacity over current facility generating capacity. 3) result in the existing power plant either: i) complying with applicable new source review standards under the federal Clean Air Act ; ii) emitting air contaminants at levels substantially lower than allowed for new facilities by the applicable new source performance standards under the federal Clean Air Act; or, iii) reducing emissions from current levels at a unit to the lowest cost-effective level when, due to the age or condition of the generating unit, the public utility demonstrates that it would not be cost effective to reduce emissions to the levels in item (i) or (ii). Clause (i) above, new source review (NSR), is a determination of whether a proposal meets the test of best available control technology (BACT). The requirement of clause (ii) requires the MPCA to determine whether a proposal meets New Source Performance Standards (NSPS) for new facilities. In proposing projects that meet neither of these requirements, clause (iii) requires a proposer to demonstrate that it is not cost-effective to meet clauses (i) or (ii). 3.2 Do the Projects Qualify Under Minn. Stat. 216B.1692 Subd 1? A.S. King The A.S. King plant is located in Bayport, Minnesota on the St. Croix River and has a net generating capacity of 504 MW. The MPCA determined in its original analysis of this project that it qualifies under Minnesota statute. Because the Alternative project and the original Proposal are identical for this plant, the project for A.S. King Alternative qualifies. 6

8 3.2.2 High Bridge Is it an existing large electric generating power plant as defined under Minn. Stat. 216B.2421 subd. 2 that is located in the state and not subject to emission limitations for new power plants under the federal Clean Air Act? The High Bridge plant is located between Shepard Road and the Mississippi River in downtown St. Paul. It has four boiler units, two dedicated to producing steam for a manufacturer and two for generating electricity. The electricity generating units, units 5 and 6, were brought online in 1956 and 1959 respectively. Unit 5 has the electricity generating capacity of 85 MW and Unit 6 has a capacity of 158 MW, for a total generating capacity of 243 MW. Because the facility is greater than 50 MW, it is a large generating station. The project meets this requirement of the statute. Does it increase capacity by more than 10 percent or more than 100 MW? There is no increased in electricity generation with the alternative. There is in fact a slight decrease in available electricity due to the parasitic load of the air pollution control equipment. Does the project propose best available control technology? Table 1 shows the current emission rates at the High Bridge plant and the emission rates that would result from Xcel s Alternative project with BACT determinations for similar plants and the NSPS for new coal-fired power boilers. 7

9 Table 1. Comparison of emission data, including New Source Performance Standards, recent New Source Review limits, existing and proposed emission rates for Xcel High Bridge for the Alternative. Capacity NO x SO 2 PM 10 MW mmbtu/hr Lb/mmBtu Lb/mmBtu Lb/mmBtu High Bridge 5 and 6, coal New Source lb/mwh Performance Standards Recent Best Available Control Technology determinations for coal-fired generating units 3 Range of Recent BACT determinations Median of BACT determinations Emission rate, High Bridge 5 and 6 Alternative Project lb/mmbtu 2.69 lb/mwh Table 1 shows the Alternative project emission rates for SO2 and PM at the High Bridge plant reflect BACT-like control levels. Emission rates for NOx do not meet BACT levels. The Alternative project at High Bridge does not meet BACT. Does the Alternative meet NSPS? Because the Alternative does not meet emission rates that would be established through a BACT analysis for NOx, the MPCA must determine whether the Alternative project for this facility meets the emission rates as set forth in the NSPS for a new coal fired facility. The new source performance standard for new coal-fired facilities expresses NOx limits in terms of the amount of NOx released for the electricity generated (lb/mwh), not in terms of the heat input (lb/mmbtu). The MPCA has calculated the resulting NOx 1 New Source Performance Standards in 40 CFR 60 Subpart Da (40 CFR 60.40b-60.49b). 2 The NSPS restricts emissions of PM (not PM 10 ) from coal-fired boilers. The NSPS also requires a reduction of 99% of particulate matter from coal-fired boilers. 3 These BACT determinations were made for units burning coal. Modifications recorded in the RACT/BACT/LAER Clearinghouse from 1997 to 2002 were included in the analysis. Values for NOx were based on coal-fired boilers, while the values for SO2 and PM10 were based on boilers using subbituminous coal. 4 Emissions rates identified in Xcel Response to MPCA Request No.1, dated August 23, 2002, and the Xcel Response to MPCA Request No. 2, dated September 5,

10 emissions rate for High Bridge as 2.69 lb/mwh, which does not meet NSPS, let alone result in emissions substantially lower than NSPS as required by the statute. Does the project reduce emissions to the lowest cost-effective level, given the age or condition of the generating unit? An assessment has not been provided by Xcel to determine whether the Alternative project at High Bridge reduces emissions to the lowest cost-effective level. The MPCA is currently unable to conclude whether the Alternative meets this requirement of the statute, but has requested information from Xcel to help make this determination. Summary The High Bridge Alternative project does not satisfy the conditions of Minn. Stat. 216B.1692, subd. 1 (i) or (ii). The MPCA is unable to conclude whether the Alternative project at High Bridge qualifies for the rate recovery treatment under Minn. Stat. 216B.1619, subd. 1(iii) at this time Riverside Is it an existing large electric generating power plant as defined under Minn. Stat. 216B.2421 subd. 2 that is located in the state and not subject to emission limitations for new power plants under the federal Clean Air Act? The Riverside Plant is located on the east bank of the Mississippi River north of downtown Minneapolis. It has three power boilers. Units 6 and 7 were initially constructed in 1946 and 1948 respectively. Together, these two boilers generate steam for one steam turbine for a generating capacity of 134 MW. Boiler 8, first installed in 1961, has a separate steam turbine with a generating capacity of 226 MW. Due to the dates of construction, these units were not initially subject to either NSPS or NSR regulations because they were built before the Clean Air Act was passed. The plant s capacity exceeds 50 MW so it is an existing large electricity generating plant. Does it increase capacity by more than 10 percent or more than 100 MW? The proposal does not increase the generating capacity of this plant. In fact, there is a very slight decrease in generating capacity due to the parasitic load of the air pollution control equipment and other operating constraints associated with the control equipment. Does the project propose best available control technology? 9

11 Table 2 shows the current emission rates at the Riverside plant and the emission rates that would result from Xcel s Alternative project with NSPS and BACT determinations for similar plants. Table 2. Comparison of Emission Data, including New Source Performance Standards, recent New Source Review Limits, existing and proposed emission rates for Xcel Riverside for the Alternative project. Capacity NO x SO 2 PM 10 MW mmbtu/hr Lb/mmBtu Lb/mmBtu Lb/mmBtu Riverside 6/ , Riverside , New Source Performance lb/mwh Standards Recent Best Available Control Technology determinations for coal-fired generating units 6 Range of Recent BACT determinations, pulverized coal Median of BACT determinations Emissions, Riverside 6/ Range of Recent BACT determinations, cyclone boilers Median of BACT determinations Emissions, Riverside lb/mmbtu 3.89 lb/mwh lb/mmbtu 4.93 lb/mwh Table 3 shows the Alternative project emission rates for SO2 and PM at the Riverside plant meets BACT-like level of controls. The emission rate for NOx does not meet BACT levels for either Units 6/7 or Unit 8. The Alternative project at Riverside does not meet BACT. 5 New Source Performance Standards in 40 CFR 60 Subpart Da (40 CFR 60.40b-60.49b). 6 These BACT determinations were made for units burning coal. Modifications recorded in the RACT/BACT/LAER Clearinghouse from 1999 to 2002 were included in the analysis. Values for NOx from Riverside Units 6/7 were based on units firing coal. Values for NOx from Riverside Unit 8 were based on coal-fired cyclone boilers. The values for SO2 and PM10 were based on boilers using subbituminous coal. 7 Emissions rates identified in Xcel Response to MPCA Request No.1, dated August 23, 2002, and the Xcel Response to MPCA Request No. 2, dated September 5,

12 Does the Alternative project meet NSPS? Because the Alternative does not reflect emission rates that would be established through a BACT analysis for NOx, the MPCA must determine whether the Alternative project at Riverside meets the emission rates as set forth in the NSPS for a new coal-fired unit. The NSPS for new coal-fired facilities expresses NOx limits in terms of the amount of NOx released for the electricity generated (lb/mwh), not in terms of the heat input (lb/mmbtu). The MPCA has calculated the resulting NOx emissions from Riverside units 6/7 and 8. The emission of NOx from these units is substantially higher than that required by NSPS for NOx. The Alternative does not meet NSPS. Does the project reduce emissions to the lowest cost-effective level, given the age or condition of the generating unit? An assessment has not been provided by Xcel to determine whether the Alternative project at Riverside reduces emissions to the lowest cost-effective level. The MPCA is currently unable to conclude whether the Alternative meets this requirement of the statute, but has requested more information from Xcel to help make this determination. Summary The Riverside Alternative project does not satisfy the conditions of Minn. Stat. 216B.1692, subd. 1 (i) or (ii). The MPCA is unable to conclude whether the Alternative project at Riverside qualifies for the rate recovery treatment under Minn. Stat. 216B.1692, subd. 1(iii) at this time. 11

13 4.0 Other Questions the PUC Must Consider Minn. Stat. 216B.1692, Subd. 5 requires the PUC to evaluate whether: 1. the emission reduction project is needed to comply with new state or federal air quality standards; or 2. the emission reduction project is required as a corrective action as part of any state or federal enforcement action. The MPCA has evaluated both of these questions as they relate to the Alternative project and continues to conclude, for the reasons explained in its December 2002 Report on the Proposal that: 1. None of the projects are currently needed to meet any new state or federal air quality standards, and 2. None of the projects are currently required as a corrective action as part of any state or federal enforcement action. 12

14 5.0 Estimated Capital Cost of the Alternative Project The MPCA reviewed the cost of the alternative project to determine whether the estimated costs are reasonable because they end up being compared to the estimated benefits of the project. Reviewing costs also is important because the cost-effectiveness of this Alternative project is now under consideration. 5.1 Method of Analysis The MPCA used the same data source and cost generating tools as it used for its assessment of the control equipment proposed at the A.S. King plant in the December 2002 report. National cost estimates were gathered from capital costs developed by EPA and U.S. Department of Energy s Energy Information Agency as a general estimate of installing air pollution control equipment (EIA) (EPA 1998, EPA 1999a, EIA, 2000). This type of estimate provides an approximate cost, and does not take into account regional differences between labor, material, or transportation costs. EPA s air pollution control cost workbook CUECost (Keeth) was used to estimate construction costs on a more site-specific basis, recognizing that it too does not account for all site-specific factors. For example, based on Xcel s previous reply 8, the MPCA adjusted CUECost when assessing the Alternative projects at High Bridge and Riverside to account for higher labor rates in this area than the default rates in CueCost. However, other factors, such as specific plant design values, were not adjusted from the default due to the MPCA not having this information, or its relative small effect on estimating construction costs. 5.2 Assessment of A.S. King Cost Estimates Because the air pollution control and boiler/generator upgrades in the Alternative for this plant are identical to the original Proposal, no further assessment of cost estimates for the A.S. King plant were undertaken. Total construction costs are estimated at $363 million ($2001). In December 2002, the MPCA concluded that for this plant, Xcel s capital costs estimates for the air pollution control equipment are within an expected reasonable range of cost, and are consistent with the costs experienced by the industry for this type of project. 5.3 Assessment of High Bridge Cost Estimates The Alternative involves the installation of low-nox burners, over-fire air systems, and boiler optimization software on the boiler of Units 5 and 6. Post-combustion air pollution control would be installed downstream, consisting of adding spray drying/fabric filter. The units currently each have electrostatic precipitators (ESPs) for PM control. A single spray drying absorber unit would be installed after the ESPs, which is followed by a single pulse-jet fabric filter, finally exiting through the plant s single stack. 8 Xcel Response to MPCA Request No. 20, December 9,

15 These types of air pollution control devices are common in the industry due to continued NOx and SO2 reduction requirements under EPA s NOx SIP call and Title IV of the Clean Air Act. Table 3. Comparison of Capital Costs for High Bridge Alternative. Size (MW) 2001 Total Construction Costs (in millions) Installed Cost per kw generating capacity ($/kw) Xcel s Estimate High Bridge Units 5 and EIA/EPA 9 Total cost of air pollution control retrofit (sum of 308 individual estimates below) NOx (LNB/OFA) Acid gas (LSD) Particulate (FF) EPA CUECost 11 Total cost of air pollution control retrofit (sum individual estimates below) NOx (LNB/OFA) Acid Gas (LSD) Particulate (FF) Based on these comparisons as shown in Table 3, Xcel s estimate of total capital cost of installation of air pollution control equipment at High Bridge is almost exactly what national cost estimates would predict as installation costs on a per kilowatt basis. Xcel does not provide a breakdown of costs of the project between NOx, acid gas or particulate control equipment. To obtain the full benefit of retrofitting the air pollution control equipment, Xcel states in its filing that additional rehabilitation work must be performed at the High Bridge plant to ensure its long-term reliability 12. This is a reasonable expectation, as Units 5 and 6 are now nearing 50 years old each. Without rehabilitation, these units will continue to age, becoming less and less reliable as generating stations. 9 Energy Information Agency 2001/EPA 1999a/EPA LNB/OFA= low NOx burners, overfire air; LSD= lime spray drying; FF= pulse jet fabric filter 11 Because a single acid gas and particulate matter device is proposed downstream of both boilers, CUEcost was used to determine the cost of these two controls based on 243 MW of generation. The control of NOx was run separately for a 85 MW boiler (HB 5) and for a 154 MW boiler (HB 6). The NOx control capital cost reflects the sum of these two runs. 12 Xcel Emissions Reduction Proposal, July 26, 2002, Attachment 5.A. 14

16 The MPCA believes that in order for the installation of air pollution control equipment on this plant to be considered a reasonable investment, Xcel would have to commit to overall plant rehabilitation, the extent, timing and cost of which are not described in the filing. Further, the MPCA believes that part of rehabilitating High Bridge must address reconfiguring current coal storage. Because of the ongoing interest in controlling fugitive emissions and the beautification of the Mississippi River, enclosed coal storage and handling facilities should be a part of any facility rehabilitation. Cost estimates for this activity should be included in the cost of overall plant rehabilitation. While the estimated cost of installing the pollution control equipment is reasonable, the Alternative fails to include projected costs for other necessary work that should also take place at the site. 5.3 Assessment of Riverside Capital Costs The coal-fired combustion and generating units at Riverside are very different from one another, which affects the applicability of traditional boiler modifications used to control NOx. Units 6 and 7 are conventional wall-fired pulverized coal boilers. Unit 8 is a cyclone boiler, which burns pulverized coal in a different manner from conventional pulverized coal boilers. The cyclone boiler generates a great deal of NOx, and burner/boiler modifications are technologically limited. Units 6 and 7 already have spray drying and fabric filters in place but have not been in use 13. The Alternative project for Units 6 and 7 includes rehabilitating this control equipment and adding new chemical injection equipment. Riverside 8 includes installing a new spray dryer and fabric filter downstream of the existing ESP. Additionally, overfire air modifications would be made to the boiler to lower NOx emissions from this cyclone boiler. Because of the differing conditions at Unit 6 and 7 and Unit 8, the retrofitting of Riverside should be viewed as two individual projects with different scope and technology options. Unit 6 and 7 The cost estimating tools available to the MPCA do not provide the means of estimating the cost of rehabilitating existing air pollution control equipment. Traditionally the cost of such activities includes first an assessment of the condition of the existing equipment, then a determination of equipments cost of replacement and/or repair. This type of work relies on expert engineering judgment, rather than cost predicting tools. 13 The spray dryer/fabric filter system was installed as a pilot project in the early 1980 s to evaluate appropriate air pollution control technologies for use at Sherco Unit 3. The control equipment is not needed to meet any regulatory requirements because the Riverside plant is grandfathered from various Clean Air Act control requirements that would require use of the spray dryer/fabric filter. 15

17 Costs for NOx control retrofits are fairly well-understood. Assuming that the cost estimating tools have reasonably predicted the cost of NOx control at Unit 6/7 (which for these units has turned out to be very small), the bulk of the cost of improving air pollution control at Unit 6/7 is related to rehabilitating the SD/FF. The $26 million estimated for rehabilitating this plant is only 5 percent of the total capital cost of the Alternative, making the cost of this upgrade minimal relative to the cost of the entire project. The MPCA therefore believes that for the scope of the air pollution control Alternative project described in the filing, the capital cost estimate for Riverside Units 6/7 is reasonable. Table 4. Comparison of Capital Costs for Riverside Unit 8 Alternative Project. Size (MW) 2001 Total Construction Cost (Millions) Installed Cost per kw generating Capacity ($/kw) Xcel Estimate Riverside EIA/EPA Total cost of air pollution control retrofit (sum of individual estimates below) 367 Adding NOx Control (Coal Reburning) 82.7 Adding Acid Gas Control (LSD) 215 Adding Particulate Control (FF) 69 EPA CUECost Workbook Total cost of air pollution control retrofit (sum of individual estimates below) Unit 8 Adding NOx Control (LNB/OFA) Adding Acid Gas Control (LSD) Adding Particulate Control (FF) In its assessment of the cost of NOx control techniques for cyclone burners, EPA assumes the method of choice is a combustion control technique called coal reburning. This method reduces NOx emissions by staging combustion, and EPA assumes it will reduce NOx emissions by about 50%. It is a moderate capital cost method of NOx control over the use of over-fire air modifications, the method proposed for Unit 8 in the Alternative. Xcel estimates that over-fire air will achieve NOx reductions on the order of about 50% (along with the use of boiler optimization software) at Unit 8. Over-fire air modifications represent a low capital cost technology. Because EPA only provided estimates for the more capital-intensive NOx control method for cyclone boilers, the resulting EIA/EPA estimate shown in Table 4 of the Alternative for Unit 8 on a $/kw basis is higher than the Alternative capital cost estimated by Xcel. 16

18 A more site-specific total project cost estimate is provided by CUECost, which predicts an even higher capital cost for the project than the EIA/EPA data, again shown in Table 4. As discussed in the MPCA s December 2002 report, spray drying and fabric filters are fully mature technologies within the past 7 years. This means that since the time that these data sources were generated, advances in scrubbing equipment technology have significantly reduced the size of spray dryers 14, which reduces the cost of materials and installation of such equipment. Further, the control equipment industry itself has consolidated, meaning that a single company can now supply both a spray dryer and fabric filter, offering additional savings by eliminating coordination and tie-in between different suppliers during design and fabrication of the components. The MPCA concludes that the cost estimate for the Alternative project at Riverside Unit 8 appears to be in a reasonable range. Other Issues Like High Bridge, Xcel states that additional rehabilitation work will be necessary at Riverside to ensure that the full benefits of the air pollution control installation are realized 15. The nature, scope and cost of such rehabilitation was not provided in Xcel s filing, thus the total cost of the project at Riverside has not been stated. Because plant rehabilitation would likely significantly further extend the life of the current plant, continuing the ongoing use of coal, the MPCA believes that the scope of plant rehabilitation should include addressing fugitive dust emissions from the transfer of coal and ash at Riverside. This is of considerable consequence to the neighborhood around the Riverside plant, and would be in keeping with the overall goal of improving air quality from operating electricity generating stations, as well as address local interests in improving the aesthetics of the Mississippi River corridor. While the estimated cost of installing the pollution control equipment is reasonable, the Alternative fails to include projected costs for other necessary work that should also take place at the site. 5.4 Summary Construction costs of the Alternative project at all three metropolitan plants appear to be reasonable based on comparisons with national data bases and cost estimating tools. The total Alternative project costs for High Bridge and Riverside are likely underestimated. Rehabilitation of the remaining plant has been noted in Xcel s filing, but has not been accounted for in the project cost estimates. Rehabilitation of the plants should also include redesigning coal management to minimize fugitive dust, which ahs not been included in the Alternative. 14 Xcel Response to MPCA Request No. 20, December 9, Xcel July 29, 2002 Filing, Attachment 6.A. 17

19 The total Alternative project costs are therefore likely expected to be higher than currently described in Xcel s filing. The MPCA is unable at this time to estimate the likely increase. The MPCA recommends that should there be continued interest in the Alternative, Xcel should provide costs related to both plant rehabilitation and coal management. 18

20 6.0 Assessment of the Benefits of the Alternative Project 6.1 Emission estimates of the Alternative Table 5 below shows the MPCA s calculations of emissions expected after implementation of the Alternative project. The capacity factor was provided by Xcel 16. Table 5. MPCA s estimated annual emissions for the Alternative project at Xcel generating stations, tons per year (tpy). Capacity factor SO 2 (tpy) NO X (tpy) PM 10 (tpy) CO 2 (tpy) CO (tpy) Pb (pounds) Mercury (pounds) A.S. King ,298 1, ,810, High Bridge , High Bridge , Riverside 6/ , , Riverside , ,362, Three plants, Total 4,215 8, ,681,857 1, Table 6. Comparison of annual overall emissions for the three plants with the MERP Alternative project. SO 2 NO X PM 10 CO 2 CO Lead Mercury Current annual emissions from the MERP plants (tpy) Emissions change (tpy) 34,178 24, ,545, ,963-16, , Percent change The emission reductions calculated by the MPCA in Table 6 are reported as annual emissions. Xcel reported emission changes over a period of 10 years in its filing. Increases in PM 10, CO 2, and CO result from increased facility use. 16 Xcel Response to MPCA Request No. 1. August 23, Reported for emissions from all units at the facility (High Bridge 5+6, Riverside 6/7 + 8). 18 Lead and mercury emissions are reported in pounds per year. 19

21 6.2 Xcel Energy s Estimates of Environmental Benefits of the Alternative Xcel Energy uses the PUC s high environmental externality values and estimates that the net present value of the MERP Alternative s environmental benefits will be $78 million over ten years 19. This calculation was made using the same assumptions Xcel used to estimate the environmental benefits of the Proposal. 6.3 MPCA's Estimate of Environmental Benefits for the Alternative The MPCA believes that Xcel s estimate of the benefits associated with the Alternative underestimates the benefits for the same reasons the MPCA believed the Xcel Proposal calculation underestimated benefits. Adjusting the benefits estimation to account for a longer time period as well as for a different discount rate (the rational for these adjustments are outlined in the MPCA s original report starting on page 38) changes the benefits estimate to $182 million dollars over a 30 year time period. Figure 1 shows this estimate. Using the PUC s low externality value in the calculation produces a benefits estimate of $95 million. 19 Xcel July 26, 2002 filing, Attachment 7.B. An addition error occurred when summing the total benefits related to NOx. The correct total benefits is $78.48 million, not $60.4 million. 20

22 Figure 1. Estimate of Alternative project benefits to year $ millions, net present value $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $- Xcel original estimate of MERP alternative MPCA: 2040 end date, discount = 3% Low externality value High externality value 6.4 Avoided Costs Xcel s Alternative proposal results in an increase in generation capacity of about 60 MW at the King plant. Xcel has not estimated the value of avoided costs associated with this capacity increase. However, they did estimate the avoided cost associated with the Proposal 21. Using that estimate and scaling down to reflect the amount of additional capacity that would result from the Alternative, the MPCA estimates that the net present value of direct avoided costs for the Alternative to be about $110 million. There are also benefits associated with refurbishing plants to provide a longer useful life. At the time MPCA filed its initial report on the Proposal, there was no estimate available for this. However the MPCA speculated that this value must be worth several hundred million dollars. Xcel has since provided a figure for this benefit for the Proposal as $400 million 22. Scaling this amount to reflect the fact that in the Alternative proposal only the King plant refurbishment results in an increase in generating capacity, the MPCA estimates this net present value benefit to be $183 million. Since this calculation of avoided costs for refurbishing existing capacity of the Alternative proposal is scaled based on MW, it should only be considered as illustrative of the relative magnitude of the actual values, rather than a specific estimate based on the conditions present at the Riverside and High Bridge plants. 20 While an externality value is provided for lead emissions, its contribution to this calculation is so small that the MPCA has chosen not to include it in these discussions. 21 Xcel Response to MPCA Request No. 17, November 18, Xcel Response to Department of Commerce Request No. 31, January 31,

23 6.5 Other Benefits The previous analysis of benefits does not include any benefits relating to a number of important environmental and health issues. These are carefully outlined in the MPCA s original report on pages and pages The most important of these unaccounted benefits include the direct health impacts of fine particulates (PM 2.5 ). It is important to note that with the Alternative as with the Proposal, the MPCA believes that the benefits calculations greatly underestimate the actual benefits, primarily due to the fine particulate issue. Also, because the Alternative does not substitute natural gas for coal at the Riverside and High Bridge plants, the benefits associated with removing coal delivery, storage and ash management would not apply to the Alternative. 6.6 Comparison of the Proposal to the Alternative The following tables summarize the most significant differences between the Proposal and the Alternative. Table 7 compares the difference in the emissions for each project. Table 9 describes important features of each project that should be included in making comparisons between the Proposal and the Alternative. Table 7. Emission Changes of the MERP Proposal and Alternative projects. Proposal Emissions change (tpy) SO 2 NO X PM 10 CO 2 CO Lead Mercury -31,880-22, , Percentage change Alternative Emissions change (tpy) -29,963-16, , Percentage change Lead and mercury are reported in pounds/year. 22

24 Table 8. Comparison of the MERP Proposal and Alternative projects. Cost (net present value) Proposal Alternative $1600 million $664 million Avoided Costs due to new capacity $700 million $110 million Avoided Costs to refurbish the plants $400 million $183 million Health and Environmental Benefits based on $ million $ million externality values Emission Reductions -Greater reductions of SO 2 -Significantly greater reduction of NOx -Significantly greater reduction in PM 10 -Significant reduction in mercury -Significant reduction of SO 2 -Significant reduction in NOx -Sizable reduction in PM 10 -No predicted reductions in mercury -Increase in CO 2, CO and lead -Decrease in CO 2, CO and lead Refurbished Power 1100 MW of refurbished power 504 MW of refurbished power New Capacity Local Benefits 384 MW of new capacity 60 MW of new capacity Greater local benefits due to the emission reduction and elimination of coal handling at 2 plants No benefit from the elimination of coal handling The information in the table clearly shows that while the Proposal has a significantly higher cost than the Alternative, it also has significantly greater benefits. The costs of the Proposal ($1,600 million) roughly equal the benefits ( $500 million in environmental and health benefits + $400 million in avoided costs to refurbish existing capacity + $700 million in avoided costs associated with new capacity = $1,600 million.) For the Alternative, the total costs ($644 million) exceed the estimated benefits ( $182 million in environmental and health benefits + $183 million in avoided costs to refurbish existing capacity + $110 million in avoided costs associated with new capacity = $475 million.) However, it is important to remember that the environmental and health benefits in both calculations do not take some benefits into account because they were calculated using the Commission's externality values. The latest scientific understanding of fine particulates (PM 2.5 ) indicates that the value for PM should be significantly higher. Likewise, environmental scientists now find damages associated with mercury deposition, sulfur dioxide emissions, acid rain and a number of other factors that are excluded from the Commission's externality values. From this analysis, the Proposal is superior. 23

25 Another way to assess the costs and benefits of the Proposal and Alternative is to look at the costs per ton of pollutant reduced. This is an approach that is often used by EPA and states to analyze various control technology options for cost-effectiveness. The MPCA has conducted a preliminary assessment of the Proposal and Alternative to determine the cost per ton of pollutant removed for each option, included in Attachment 1. When comparing these two proposals in this manner, taking avoided costs into account, the Proposal shows a lower cost per ton of pollutant reduced than the Alternative proposal. This suggests the Proposal is more cost-effective than the Alternative. 24

26 7.0 Appropriateness of the Alternative Project The three plants addressed in Xcel s Alternative are old power plants that were exempt from having to upgrade pollution control equipment by the 1970 federal Clean Air Act. Nationally, the need to reduce emissions from power plants, especially the older grandfathered plants has been recognized in all circles. Huge environmental and health benefits will result from reducing power plant emissions. The debate has moved from whether to reduce, to how much and by when. Because the MPCA is currently unable to determine whether the proposed changes at the High Bridge and Riverside plants qualify under the statute, it is difficult to address the appropriateness of the Alternative. It would seem, if pollution control equipment upgrades are to be made at High Bridge and Riverside, state-of-the-art control technology would be more appropriate than lesser technology. Especially, considering that, with this investment in equipment and the refurbishments Xcel refers to but does not include in the Alternative, these plants are likely to continue operating for years to come. 7.1 Cost and Benefits While it has not been possible to provide a detailed qualitative cost-benefit analysis of the Alternative, the MPCA has reviewed both the projected capitol costs and the estimated benefits. The MPCA has concluded that the cost of the Alternative is approximately $664 million net present value, when assuming a plant life beyond After subtracting the avoided costs associated with the benefits of the additional generation capacity and the rehabilitation of the King plant, the cost of the Alternative is closer to $371 million. Using a more realistic timeframe for benefit accrual and using a more appropriate discount rate, the benefits are estimated at between $95 million and $182 million when using the PUC s externality values. Unfortunately, these benefits estimates do not fully and qualitatively assess all the benefits associated with the Alternative. 7.2 Comparison of the Alternative to the Proposal. The MPCA has also compared the Alternative to the Proposal. While the Alternative costs less than the Proposal, the Proposal provides substantially greater benefits. The Alternative would reduce sulfur dioxide (SO 2 ) nearly as much as the Proposal. While the Alternative would substantially reduce nitrogen oxides (NOx) and particulate matter (PM10) emissions, the reductions are not nearly as large as the reductions of these pollutants in the Proposal. Instead of reducing carbon dioxide, carbon monoxide and lead as the Proposal does, the Alternative increases emissions of these pollutants. Finally, the Alternative makes no reductions in mercury emissions, unlike the significant reductions that would be achieved by the Proposal. In addition, the Proposal provides substantial local benefits that the Alternative does not due to the switch from coal to natural gas at High Bridge and Riverside. The costs and benefits that are quantifiable from the Proposal are at least equal, while costs substantially exceed benefits for the Alternative. In both cases, however, the most 25

27 substantial unquantified benefit, reduction in fine particles, is not accounted for in these calculations. Because of the greater emission reductions from the Proposal as well as the greater avoided costs, the MPCA has calculated that the Proposal is more cost effective on a dollars-per-ton-reduced than the Alternative. As a result, the MPCA believes that the Proposal is a more superior project than the Alternative. 26